Consignee Liability for Freight Charges: Lessons from International Freeport Traders v. Danzas

When goods are shipped internationally, questions often arise about who must pay for freight, storage, and other charges—especially when the consignee did not directly hire the cargo handler. The Supreme Court addressed this in International Freeport Traders, Inc. v. Danzas Intercontinental, Inc. (G.R. No. 181833, January 26, 2011), clarifying when a consignee becomes liable for charges through a contract of lease of service.

The Facts

International Freeport Traders, Inc. (IFTI) ordered chocolates from Jacobs Suchard Tobler Ltd. of Switzerland under a "F.O.B. Ex-Works" delivery term. Jacobs engaged Danmar Lines, which issued house bills of lading through its agent, Danzas Intercontinental, Inc. The shipment was consigned to China Banking Corporation, with IFTI as the party to be notified.

Danmar, lacking its own vessel, contracted Orient Overseas Container Line (OOCL) to ship the goods. OOCL issued a master bill of lading stating freight was prepaid, with Danzas as consignee. Danmar paid OOCL a fee to process release of the goods and deliver them to Clark.

When the goods arrived, Danzas asked IFTI to surrender the original bills of lading and provide a bank guarantee to ensure payment of freight and other charges. IFTI initially resisted, insisting the letters of credit covered the shipment. However, IFTI eventually provided the bank guarantee, issued a promissory note, and requested release of the goods pending settlement of charges.

After Danzas delivered the goods to Clark, IFTI initially agreed to pay P56,000.00 for electric charges and storage fees. Later, Danzas demanded P181,809.45, leading to litigation.

The Issue

The central question was whether a contract of lease of service existed between IFTI and Danzas, making IFTI liable for the charges.

The Ruling

The Supreme Court ruled against IFTI, affirming the Court of Appeals' decision. The Court found that IFTI voluntarily accepted Danzas' services by acceding to its documentary requirements.

Meeting of the Minds

The Court explained that a contract is perfected by mere consent, manifested by the meeting of offer and acceptance upon the thing and cause constituting the contract. Contracts undergo three stages: negotiation, perfection, and consummation.

Here, IFTI's actions—preparing the import permit, providing the bank guarantee, and issuing a promissory note—demonstrated its acceptance of Danzas' services. The Court noted that if IFTI believed OOCL was responsible for delivery, it should have addressed its demands to OOCL rather than complying with Danzas' requirements.

Delay and Liability

The Court also addressed the delay in releasing the goods. Under arbitrary shipments, goods may stay free of charge in the port for three working days and in storage for five to six calendar days. Beyond this, storage fees, electric charges, and demurrage become due.

The goods arrived on May 14, 1997, so they could remain free until May 20, 1997. The Court found the delay was IFTI's fault because it failed to provide the bank guarantee promptly. The Court awarded Danzas P122,191.75 for charges from May 20, 1997 to June 13, 1999.

Practical Takeaways

• Consignees can become liable through conduct. Even without a written contract, acceding to a cargo handler's requirements—such as providing bank guarantees or promissory notes—can create a binding contract of lease of service.
• Know the delivery terms. Understand whether your shipment is "freight prepaid" or "freight collect," and what obligations arise under F.O.B. terms.
• Act promptly. Delays in providing required documents can shift liability for storage fees, demurrage, and other charges to the consignee.
• Address disputes with the right party. If you believe another party is responsible for delivery, direct your demands to that party rather than complying with the cargo handler's requirements.
• Document everything. Written communications showing negotiations and agreements can determine liability in disputes over freight charges.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.